A car dealership offers you no money down on a new car

Management Feb 03, 2021

A car dealership offers you no money down on a new car. You may pay for the car for 4 years by equal monthly end-of-the-month payments of $338 each, with the first payment to be made one month from today. If the discount annual rate is 3.76 percent compounded monthly, what is the present value of the car payments?

Round the answer to two decimal places.

Expert Solution

Computation of Present Value using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value = ?

Rate = 3.76%/12 = 0.3133% compounded monthly

Nper = 4 years * 12 months = 48 months

PMT = $338

FV = 0

Substituting the values in formula:

=-pv(0.3133%,48,338,0)

PV or Present Value = $15,041.06

So, Present Value of Car Payments is $15,041.06

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